CONRAD TUERK, President, Tuerk & Associates
If someone tries to sell you the Brooklyn Bridge, he or she may not be kidding. Tough times have forced cities to seek new ways to generate cash flow. The same is true in Orange County, where municipal governments are working to stay in the black. A golf course, hospital or jail once under public management could one day be run by a private company. Conrad Tuerk, an Irvine-based mergers and acquisitions specialist who assists governments in selling their properties, recently talked to Times correspondent Ted Johnson.
Why would a city want to sell a revenue-generating asset?
Almost every city and county is experiencing financial difficulty these days, not only in California, but across the country. If you look at it, privatization is really a global phenomenon. You look at Mexico, Czechoslovakia, and Russia. In our country, it’s probably the worst state and local government crisis, from a financial standpoint, since the Great Depression. What this all boils down to is governments have to look at costs just like businesses. They often do not run an asset as efficiently as the private sector. All of the surveys I have show they save 25% to 30% after a private operator goes in to run it, and often the service to the citizens increases.
You sold a public hospital owned by the city of Alhambra. How did you find a buyer?
When I got involved there were four active bidders for the hospital. The highest bid was $6.4 million, but the city had $8 million in bonds against the facility. It has 157 beds, and it was losing money and the census was probably under 50%. The hope was that they could get $8 million. We ended up selling the hospital for over $10 million, all cash, to a Taiwanese investor. Obviously he was a very wealthy guy, and he wanted to take some of his money and move it to the States. The investor then brought in an outstanding professional manager who was a National Medical Enterprises manager at a neighboring hospital. He was going to make more money than the mayor, the city manager or anyone else, but attracting that kind of talent is what it takes to run a business. He went through some difficulties the first year, but the hospital is doing very well now. It’s not only profitable, it is providing better service to the community.
How did you drive up the price?
I don’t put a price on it. I sort of had a limited auction. I just visited with each of the buyers separately. I didn’t tell them what each was bidding. You must do it very honestly and let them know there’s competition.
In Barstow, you sold a 10-year lease on a hospital. Was that any different?
When you do a long-term lease of an operating facility, it’s very similar to the sale of a business. You go through the same steps. We got three finalists. Two of them were doctor groups--managed-care practices in Victorville--and one was a public company, Community Health Systems in Houston, Tex., which ended up getting the lease.
How different are the negotiations in selling a public asset than when you sell a private company?
Normally, when I represent a privately held company, what we strive to protect is the confidentiality of the sale. You are really negotiating in a very isolated way. Here, it was all done in the open. We’d go into closed session in the City Council, but you would have to come in front of all the citizens, make your confession in public and tell why you decided on the losing and winning bidders.
What are the most likely assets that cities would want to sell?
Golf courses, marinas and hospitals are very logical. Those can be sold without as much citizen concern. If you go to John Wayne Airport or LAX, that’s going to be one emotional hurdle to get people to admit that your airport has been sold. Part of Dick Riordan’s campaign for mayor of L.A. is to privatize LAX. He’s talking a long-term lease, and I’ve heard estimates of $135-million to $150-million annual payments to the city. That’s how he expects to fund the 3,000 policemen he wants to see on the streets. But there is a lot of citizen concern and questioning about it. LAX is a really well-run facility. Its value is probably $2.6 billion, according to some studies I have seen. But you have a city that has a $2.2-billion deficit, and it is in serious trouble. It’s just like when a business gets into trouble and you sell your crown jewels.
What kind of buyers are out there?
There are companies like American Golf Courses, which owns 150 of them. There are also management companies that specialize. There are also operators that have five or six marinas around Southern California. Airports are so large, there are going to be a limited number of buyers. Lockheed Corp. manages Burbank, Johnson Controls Inc. manages some airports. Each time you get an assignment, you do your own marketing study: ‘Who would benefit from owning this business?’ That’s the person that can pay a premium for it.
Will the public notice much change in service?
You better get a proven operator in there. You can’t take a chance on something that is fly-by-night. It has to be put in the agreement that the service will be at a certain level. It turns out to be a better deal--that should be the goal. It’s not always going to work that way, but if you pick the right party to be your operator, that should be what happens.
Outside of California, what kinds of assets are being sold?
If you look overseas, even bakeries in Russia are being sold. Nepal is selling its stock exchange. The governor of Massachusetts is considering the sale of the Massachusetts turnpike. He thinks they can get $1 billion for that. If you can do it, save some costs and get money to the city and provide the same or better services to the citizens, why not?
